What is an Aggressive Hybrid Fund? – Understand and Invest in Aggressive Mutual Fund

An aggressive hybrid mutual fund invests in both equity and debt instruments to create a balanced investment mix. The larger share of the portfolio goes into equities, which aim to capture market growth, while the smaller portion is allocated to debt instruments that can help to reduce overall volatility.

When markets rise, the equity portion may help the portfolio grow. During uncertain periods, the debt component may provide some steadiness. Fund managers also review and rebalance the mix regularly to maintain the intended allocation. This combination allows you to stay invested in equity markets while keeping a part of your investment relatively stable through debt exposure.

If you’re thinking about investing in aggressive hybrid funds, you should understand their salient features first:

• Combined asset mix: These funds invest in a combination of equity and debt instruments. The equity portion can bring growth potential, while the debt component may provide relative stability to the portfolio.

• Higher equity allocation: Aggressive hybrid mutual fund portfolios comprise of 65% to 80% equity and equity-related assets for possible capital appreciation and growth potential. But the remaining asset pool is allocated to debt instruments for possible cushioning against volatility.

• Professionally managed: Fund managers decide how much to allocate between equity and debt instruments based on market conditions and the scheme’s investment objective. This helps to seek the balance between risk and return.

• High risk profile: Aggressive hybrid funds have a very high risk rating due to a sizable exposure to equity & equity related instruments which results in short-term volatility. Therefore, these types of mutual funds may appeal to investors comfortable with very high risk. 

• Equity-oriented tax treatment: Since the equity exposure is above 65%, aggressive hybrid mutual funds are taxed like equity-oriented mutual funds. This may offer potential tax advantages compared to pure debt schemes when held long term, especially if you are in a higher tax bracket.

• SEBI-regulated category: Aggressive hybrid funds are governed by SEBI’s mutual fund Regulation, which ensures standardisation, transparency, and investor protection.

Let’s have a look at the key benefits of hybrid aggressive mutual funds:

• Potential for Better Returns: Aggressive hybrid mutual funds invest anywhere above 65% to 80% of their assets in equities. This high equity exposure may result in a potential for better returns, especially when compared to debt-only schemes. 

• Built-in diversification: Aggressive hybrid mutual funds invest across multiple asset classes and sectors, offering diversification benefits within a single investment and reducing the need to manage several funds individually.

• Professional management and rebalancing: Experienced fund managers monitor and rebalance the portfolio to maintain the defined equity-debt allocation, helping align the investment with the fund’s stated objective.

• Comparatively lower risk than pure equity funds: Aggressive hybrid funds may have a lower risk exposure compared to pure equity funds because they invest a part of their assets in debt assets like government.  corporate bonds, etc. 

• Tax efficiency for long term holding period: Capital gains from aggressive hybrid fund units held for over one year are taxed at 12.5%, with an exemption of up to ₹1.25 Lakh per year. Therefore, those in higher tax brackets may find investing in aggressive hybrid funds more tax efficient in the long-term, compared to debt-only schemes where taxes apply at slab level. 

   

An aggressive hybrid mutual fund may be suitable for:

• Investors with a very high risk appetite who can handle short-term market fluctuations.

• Those aiming for long-term financial goals such as retirement, education, or wealth accumulation.

• Individuals looking for diversified exposure to both equity and debt within a single scheme.

Investors who prefer professional management and periodic rebalancing between asset classes.

An open-ended hybrid scheme investing predominantly in equity and equity related instruments

The Tata Aggressive Hybrid Fund is a hybrid mutual fund scheme that invests in a combination of equity and debt investments to balance the overall portfolio performance while managing volatility. The scheme actively adjusts the proportion of each asset class based on prevailing market conditions and economic outlook.

The investment objective of the Tata Aggressive Hybrid Fund scheme is to provide Income Distribution cum capital withdrawal and or capital appreciation over medium to long term. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved. 
 

Before investing in an aggressive hybrid fund, it is important to ensure that the fund fits your overall investment plan and comfort with risk. The following factors may help you better evaluate this:

• Risk tolerance: Aggressive mutual funds carry a very high risk rating since majority of the portion is invested in equities. So, if you’re investing in these funds, assess if this aligns with your risk appetite .

• Investment horizon: Short-term volatility may be common in equities, while they may perform better in the long-run. That’s why these funds may be better suited for long-term goals. 

• Financial goals: As mentioned earlier, this type of mutual fund may be better for long-term objectives such as retirement, education, or home ownership, rather than short-term needs due to the relatively high equity exposure. 

• Fund costs and performance: Like with all mutual fund investments, you should review the expense ratio, exit load, and performance of the scheme across market cycles before investing.*

*Disclaimer: Please note that past performance is not a guarantee of future returns. 

The Rise of Hybrid Mutual Funds: Exploring why investors are turning to balanced options

An aggressive hybrid mutual fund can help you balance between potential growth and relative stability in one investment. It combines equity for possible long-term wealth creation with debt instruments that may offer some stability during market ups and downs. This makes it easier to stay invested without worrying too much about short-term market movements.

If you want to progress toward goals like retirement or your child’s education, while having a possible cushion of debt, a hybrid aggressive mutual fund may fit well into your plan. It’s managed by professionals who adjust the mix of equity and debt based on market conditions, so your investment stays aligned with your goals.